Threat to Free Trade

Reacting to alarmed reactions in Europe and Canada over a "Buy American" clause in the US stimulus plan, Obama on Tuesday said it would be a "mistake" to send a protectionist trade message at a time when the global economy is in decline.

"I agree that we can't send a protectionist message. I want to see what kind of language we can work on this issue," Obama said in an interview with Fox News.

"I think it would be a mistake though, at a time when worldwide trade is declining, for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade."

"A dangerous precedent"

The "Buy American" clause in the not-yet-approved huge, nearly $900-billion (694 billion euros) bill being debated in the Senate would allow only US-made iron, steel and manufactured goods to be used in public works projects funded by the bill.

That follows a $825 billion stimulus plan passed last week by the House of Representatives that required the use of US-made iron and steel in public works projects.

That provision has sparked concerns in the US' major trading partners, the European Union and Canada, who fear the US is moving toward increased protectionism. They worry that could hit exports to the United States as well as prompt other countries to put up trade barriers and restrict imports.

On Tuesday, John Bruton, the European Union's ambassador to the United States, sent a letter to congressional leaders and the Obama administration, expressing concern about the measure.

Bruton referred to last November's G20 meeting of the world's leading industrialized and emerging nations in Washington, where the United States and other countries pledged not to resort to protectionism.

"We regard this legislation as setting a very dangerous precedent at a time when the world is facing a global economic crisis," Bruton said.

In an interview with Reuters news agency, Bruton suggested the "Buy American" measure could diminish Obama's leadership potential.

"President Obama has a major opportunity to give leadership to the world ... that few American presidents have had for generations," Bruton said.

"If the first major piece of legislation that he signs is one that is seen as damaging the economic interests of other countries in a way that is unnecessary and wasteful, then his capacity to give the sort of leadership the world needs at this time is considerably and unnecessarily reduced."

Protectionism the wrong answer, Merkel says

Chancellor Angela Merkel of Germany, the world's largest exporter, also said the US needed to reject restrictive trade policies.

"We must avoid protectionism," Merkel told reporters, saying she had discussed the point in a telephone conversation with Obama last week.

"Protectionism is the wrong answer" to the global economic crisis, she added.

The German leader's comments came after a similar warning in a speech in Tokyo by the head of the International Monetary Fund, Dominique Strauss-Kahn, who said: "Beggar thy neighbour policies will never give a good result."

Last week, there were further signs that the recession was deepening in the United States after government data showed the US economy contracted by 3.8 percent in the fourth quarter of 2008. That's the US economy's worst performance in more than a quarter of a century.

Canada, the United States' largest trading partner, also warned this week that the "Buy American" provision could result in a global depression.